BMW Drives Germany

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Robots do most of the work in the body shop, welding, riveting and bonding hundreds of components together. Robots also apply the four layers of water-based paint to each car. But it's on the assembly line that BMW differentiates itself from even its Japanese rivals. To be able to customize each car requires highly sophisticated logistics. Workers stationed at regular intervals on the line reach back for components in wire baskets that have been rigorously sorted into the right sequence. The complexity is visible to the naked eye: halfway along the line, just past the section where car bodies are bolted onto the drivetrain and chassis, a gray three-door 1-series sticks out amid a convoy of silver 3-series cars. In theory, the plant is set up to handle five or six different BMW models simultaneously, although for the moment it handles two.

The factory has been designed so that new production processes can be added to the assembly line at any time without disrupting the work flow. That's a huge advantage over more traditional lines, which need to be shut down for any changeover or addition. Several key suppliers are based in the plant, rather than in a nearby supplier park. Jörg Baumheuer says that makes for easy communication when problems arise. He's a manager at the French auto-parts firm Faurecia, which assembles cockpits and seats for BMW in Leipzig and some other plants. The advantage for Faurecia is that it doesn't need to truck in finished parts; it simply assembles them on the spot. That cuts inventories and improves speed and reliability; the firm needs just 20 minutes' notice to put together a customized cockpit. "It cuts out the last step of the supply chain," Baumheuer says. Moreover, since Faurecia's workers eat lunch at the same cafeteria as BMW's, interchange is easy and natural.

The degree of customization that is required means BMW isn't as ruthlessly efficient as Toyota in some respects, including the number of cars produced per worker per day. But there's a trade-off. "BMW is not prepared to sacrifice its ability to give consumers the car they want. The alternative would be reduced costs but not the ability to charge a premium for customized cars," says Garel Rhys, an auto-industry expert at Cardiff University. In the end, he says, BMW's marginal revenue from customization is higher than the marginal cost advantage it gives up.

That's not to say there's no pressure on costs. Reithofer is a process engineer by training and set up the customized-production system. He's insisting on efficiency gains of at least 5% annually, "an iron goal," as he puts it. Every year BMW sits down with its suppliers to discuss specific savings targets, but it also canvasses them for creative ideas about possible cost cuts they can undertake together. Klaus Richter, a former McKinsey consultant who's now BMW's procurement man, says some 10,000 such suggestions have been made in the past three years, of which about a third have been put into practice. The savings, he says, amount to hundreds of millions of euros.

BMW has also driven some hard bargains with its workforce. It began to back away from rigid German working hours in the late 1980s, when it opened a new plant in Regensburg to produce the 3-series. Its goal even then was to decouple the union-regulated workweek from the amount of time its factory was in operation. Management made flexible working hours a condition of its investment in the plant. The demand infuriated the powerful German autoworkers union, IG Metall, but the syndicate had little choice. "Without these restrictions we wouldn't have come up with these solutions. We had to be creative," says Ernst Baumann, the board member responsible for personnel.

Winning union approval for even greater flexibility was easier in Leipzig. In part, that's because other German automakers, particularly Volkswagen, were threatening to move some of their production outside Germany altogether because of high costs. In the end, the union agreed to extend working hours without extra pay. That has been a boon to the whole industry--and the German economy. Reithofer acknowledges that the wage restraint "has been a fundamental contribution to making Germany competitive again."

BMW gained particular concessions from its workers because Leipzig is in formerly communist eastern Germany, where unemployment has been about double the western German level and wages have lagged. Under the negotiated agreement, BMW doesn't pay higher rates for Saturday work in Leipzig, and employees put in on average two more hours a week than in western German BMW plants. Moreover, about half the 5,000 workers in Leipzig are not on BMW's staff; they either work for suppliers such as Faurecia or are so-called lease workers employed by specialized agencies and used by BMW when needed. That's a relatively new but fast-growing phenomenon: the number of lease workers nationally has more than tripled in the past decade, from 160,000 in 1996 to about 600,000 today, according to the Federal Labor Office.

Union representatives generally rate BMW a good employer, and they characterize overall relations with management as good. The feeling is mutual. "German law is better than its reputation, and so are the unions," says Leipzig plant director Peter Claussen. Still, the use of so many lease workers in Leipzig is a sore point. Jens Köhler, the workers' main representative in Leipzig, reckons that lease workers receive about two-thirds the monthly pay and fewer benefits than colleagues who are BMW staffers. Calculated on an annual basis, once Christmas bonuses and profit sharing are included, lease workers are paid only about half as much. "It's not right. They're like second-class citizens," Köhler says. IG Metall, for one, is pushing for lease workers to be given a better deal nationally, but so far with little effect.

Putting BMW on a more efficient footing at home has enabled it to expand its product line in all directions. Over the past decade, it has evolved from a group with six model families--with the 3-, 5- and 7-series cars accounting for the vast majority of sales--to one with 11 model families grouped in three distinct brands, BMW, Mini and Rolls-Royce. Three new model families are in the works, including a luxury sports car. The Mini, a remnant of the otherwise disastrous 1994 Rover acquisition, has far exceeded all expectations, and BMW is expanding its production capacity in Britain. The company had anticipated selling about 100,000 Minis by 2005. In fact, it sold double that number, and production will hit 240,000 this year. Rolls-Royce won't sell nearly that amount, but it makes up in price and prestige what it lacks in volume.